In New Zealand retirement villages, there are several ways in which a resident can hold title, with the most common being a licence to occupy (LTO). Here we answer some of the most frequently asked questions:
1. What is the difference between an Occupation Right Agreement (ORA) and a Licence to Occupy (LTO)?
An LTO gives you the right to live in a unit and have access to the village facilities and services, without giving you ownership of the unit.
The offer of these rights must be made in an occupation right agreement (ORA). The ORA is your contract and it covers your payment obligations, the village manager’s duties, procedures relating to meetings and consultation, termination rights and the complaints and disputes resolution process. The Retirement Villages Act 2003 sets out in very specific terms what must be included in the ORA.
In particular, the ORA
a. confers on you as a resident certain basic rights, which are also set out in the Retirement Villages Act;
b. sets out what your costs will be on entering the village, on-going costs and how much you will be paid on leaving the village – this last amount will depend in part on how long you have lived there;
c. sets out the terms of transfer in villages where the occupation right agreement allows you to transfer from an independent self-care residential unit to a unit offering a higher level of care.
2. Are there other ways of "purchasing" into a village?
Other forms of title include unit title, cross lease, rental right and lease for life. The terms for all of these must be set out in your contract – the ORA.
With a unit title, you own your own unit title in the retirement village. The village will have a body corporate responsible for the upkeep and maintenance of communal areas, which may or may not include resident membership.
A cross lease allows you to share ownership of the land and its units and grant leases to one another to live there.
In the case of a lease for life, you have a lease for a unit or property in the village, which remains in place until you die or leave the village.
Registered retirement villages offer you security of residency over any individual or company that has loaned the operator money against the property. This means that if your operator can’t repay the loan, the lender can’t evict you and sell the unit to recover their money.
3. Most villages seem to have a monthly fee; what happens if you can no longer afford the fees?
Generally speaking you make an initial lump sum payment covering the capital cost of the unit, and pay an on-going resident levy to cover the operating costs of the village.
One of your rights encoded in the Retirement Villages Act is your right to consultation on anything that affects your occupancy or ability to pay. In other words, if you can’t pay, the situation must be discussed with you, rather than you just being evicted. It may be possible for you to negotiate to defer payments for eventual deduction from the amount you receive when you leave the village or unit. Alternatively you may be eligible for government assistance in the form of the Accommodation Supplement, which is income and assets tested.
If you have actually bought your unit title, you may be able to borrow against it and/or be eligible for a rates rebate.
4. When you die, is your family expected to carry on paying maintenance (or other) fees until the unit is resold?
Usually, when you leave, you or your estate will have to continue to pay the regular village charges until your unit sells. However, the operator must stop charging for personal services on the date you stop living permanently in the residential unit. The charges to be paid will be reduced by a minimum of 50% if no new ORA has been entered into after six months.
5. Who can re-sell the unit?
The question of who can re-sell your unit varies from village to village, but most commonly it is the village operator. This will be specified in your ORA. Often your capital payment, less deductions, will not be repaid to you until the unit has sold.
The village operator also has the right to buy the unit at a price agreed with the departing resident.
6. When the unit is re-sold what amount will I or my estate receive?
Residents are usually charged a fixed deduction, sometimes called a facilities fee, village contribution or deferred management fee. This deduction accrues during a resident’s stay, and is generally capped at 20% to 30% of the initial lump sum paid on entering the unit. On leaving the unit, the resident or their estate is repaid the initial cost of the LTO less the amount of the accrued fixed deduction. The retirement village operator generally retains any capital gains realised on the resale of an LTO to a new resident.
Sometimes an ORA requires you to pay for refurbishment when you leave – this is limited to refurbishment to the condition the unit was in when you moved in, less fair wear and tear.
Independent Legal Advice
Your occupation right agreement (ORA) is your contract for the purchase of your entitlement, and, as with any legal contract, it is vital that you have an independent lawyer check the terms and conditions, and explain what they mean for you.
If you have further questions, or require legal advice click
Sources: Retirement Villages Act 2003; Retirement Villages Code of Practice 2008
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